Dendreon: Biotech Stock Mailbag

BOSTON (TheStreet) -- This was a great week for the small but vocal group of loonies who believe in the existence of a vast conspiracy to keep Dendreon's (DNDN) prostate cancer vaccine Provenge from ever reaching the market.

The rants of the "P Baggers" -- as I like to call them -- served as the inspiration for this week's Biotech Stock Mailbag.
Dendreon

P Baggers believe that Michael Milken, the FDA, Wall Street hedge funds, Russian mobsters, naked shorters, the Cancer Letter's Paul Goldberg, esteemed prostate cancer doctors/researchers like Memorial Sloan-Kettering's Dr. Howard Scher and Michigan University's Maha Hussain and yours truly, under the direction of my "puppet master" Jim Cramer, naturally, have been working overtime for years to ensure that prostate cancer patients die and never receive Provenge.

Unfortunately, with Provenge's likely approval nearing, the opportunities for outrage and conspiracy theorizing around the P Baggers' water cooler has turned a bit dull.

That all changed Tuesday, however, when Elliot Favus of Favus Institutional Research issued a report claiming FDA was thinking about holding an advisory panel meeting to review Provenge.

Favus, my coverage of his report, and the yo-yo action in Dendreon's stock price Tuesday converged to bring great joy to the P Baggers because it gave them another opportunity to regurgitate and revamp their nutty, illogical set of grievances.

P Bagger Alan writes, " Your sic an Bleep for running that Bleep story this morning about Dendreon. Check your story before you go to print jerk. Hopefully, you and this other Bleep Favus will be investigated. I don't know how you sleep at night with the crap you write and what your Bleep costs the retail investor. "
  • Fact: The Favus report began hitting the inboxes of institutional investors Tuesday morning before 7 a.m. EST.
  • Fact: Early but small trades in Dendreon were hitting Tuesday's pre-market tape at 7:15 a.m. showing the stock down almost $1.50, or 4%. At 7:45 a.m., Dendreon was trading at $29.75, down more than 8% from Monday's close. By 8:30, the stock was at $29.23, down 10%.
  • Fact: My first indication that something was awry came via Twitter at 7:51 a.m. when someone I follow tweeted that the stock was down big for an unknown reason. At about the same time, I checked my inbox and saw an email from Favus with his report attached. Favus' email was sent to me at 7:54 a.m.

I quickly read Favus report and realized, obviously, that it was responsible for the big slide in Dendreon's stock price. I sent out an alert via Twitter about the Favus report at 7:58 a.m.

I then wrote a story about the Favus report for TheStreet and posted it about 8:15. The story was careful to note that the veracity of Favus' claim about FDA planning a Provenge panel was unconfirmed. The story also noted that neither Dendreon nor the FDA had announced any plans for a Provenge panel. It was around 5 a.m. in Seattle at Dendreon's headquarters, which made it impossible to contact the company. No one was available that early at the FDA, either.

By the time I posted my story, Dendreon's stock price was down between 8-10% and very few investors knew why. Retail investors with no knowledge of or access to Favus' report were especially in the dark.

I wrote my story because -- foolish me -- I thought readers and investors might want to learn what was happening Tuesday morning.

Not true for the P Baggers, who raise their pitchforks in anger at anyone who even mentions something possibly negative about their beloved Provenge. The first P Bagger email hit my inbox at 8:57 a.m. Tuesday.

Henry C. wrote, " You'd better hope that Dendreon's Provenge goes to an advisory panel, you bleeping crook... I have NEVER seen a stock so manipulated in my years of trading... I hope everyone involved is either prosecuted or finds themselves out of a job... hey, let's cue up that Jon Stewart video of your boss bragging about how he used to pull stunts to manipulate prices when he was running a hedge...hopefully, you will all wind up with prostrate cancer. "

By the time mid-morning rolled around, I finally reached other analysts, Dendreon and the FDA, all of whom cast serious doubt about the claims Favus made in his report. I updated my story four times Tuesday to add this new information. Other media outlets, including Dow Jones and Bloomberg, did the same thing.

Ultimately, Dendreon's stock price rebounded and moved higher, even hitting a new 52-week high intraday. That recovery was only possible because Favus' report was brought into the public light by my story and those written by other media outlets.

P Baggers should be thanking me for informing them about Favus' report and working to raise doubts about its claims. Instead I continued to receive violent, threatening emails like this one from Gene A.:

" Hey FAT HEAD -- You are truly an Bleep. How do you get up each day and look at that ugly despicable face in the mirror. Your article today about Dendreon proven wrong in about 10 minutes. You should have just kept quiet. Someday someone is gonna take you out, you surely deserve it.

"Dendreon Investor" wants me punished by the Securities and Exchange Commission:

" I just want to let you know that myself and several other people reported Elliot Favus to the SEC today by phone and through emails. Your story was cited in my email. No one may ever be able to prove the intent of your story but in any case the stock plunged this morning in the pre market and most likely the losers were small investors who panicked and most likely the winners were people who were short the stock... it was you, Mr Fuerstein sic and only you, who gave this guy the public forum to get his words out. That is something that you will have to deal with both in your reputation in your field and hopefully in your conscience if you have one. "

Hey P Baggers! If you're so confident in Dendreon and the ultimate success of Provenge (and there are surely many good reasons to be so), then why are you so easily scared when anything negative is said or written about the company and its drug?

Why would investors "panic" and sell Dendreon without wanting to learn the reason for why the stock was down? And why would an FDA advisory panel, if ever scheduled, make you want to sell Dendreon?

If manipulation in the trading of Dendreon is so rampant and wrong, why don't I hear P Baggers in a tizzy when unconfirmed and false rumors of a Dendreon takeover routinely make the rounds, sending the stock higher? (This usually happens around monthly options expiration, of course.)

P Baggers don't have rational answers to legitimate questions because they're too busy inventing nefarious characters for their shameful, illegitimate and fact-free conspiracy circus.

It's too bad that a good company like Dendreon and a promising cancer drug like Provenge has to be stained by the nonsensical ramblings of a small, misguided group of investors.


P Baggers aren't the only group out there who can't take personal responsibility for their own actions. Medivation's ( MDVN) Alzheimer's drug Dimebon failed miserably in a phase III study this week. While I previously stated my optimism for Dimebon, I also was careful to explain the huge risks involved.

This and my Medivation Mailbag column weren't cathartic enough for "Goks," who writes, " Why is that your predictions always go wrong? I'm talking about Medivation. What is the difference between me and you in terms of judging things? I have no idea what on earth makes people like you write articles. You should step down from writing articles. On the other hand if you are manipulating stocks like Mr. Cramer, you should hang yourself for eating into the lives of many gullible people. In my opinion, people who do not make money by honest ways should better get to flesh trade. I hope you agree with me."

I don't agree with you, Goks, but your e-mail stands as a reminder that free enterprise means crazy, stupid people can play the stock market, too.

Moving on to something new, Owen L. asks, " What are the prospects for Vermillion (VRML.PK) and its ovarian cancer screening test."

Vermillion at $32 a share is very toppy. I'd be taking profits if I owned the stock and I wouldn't buy the stock until there's evidence that either 1) the ovarian cancer test OVA1 can be a commercial success, or 2) Vermillion's stock price retrenches significantly.

The market for OVA1 isn't that big. Vermillion and its marketing partner Quest Diagnostics have estimated that the addressable commercial opportunity for OVA1 is between $300 million and $400 million. Vermillion will receive royalties of about 40% on OVA1 revenue.

Let's be extremely generous and predict Quest can corner 50% of this addressable market, so call OVA1 a $175 million product. That means Vermillion gets $70 million. A generous price-to-sales multiple of 5 values Vermillion at $350 million, compared to its current market value of almost $400 million.

If the real-world addressable market for OVA1 is more like $100 million, which I suspect it is, then Vermillion's current valuation is even more out of whack.

To clarify something Owen said, OVA1 is not a screening tool for ovarian cancer. The test is approved only to allow doctors to determine the malignancy of pelvic mass after that mass has been detected and the patient is referred for surgery.

When OVA1 was approved last September, the Society of Gynecologic Oncologists issued a statement on OVA1 that read, "This test has not been approved for use as an ovarian cancer screening tool, nor has it been proven to result in early detection or reduce the risk of death from this disease. Results from the OVA1 test should not be interpreted independently, nor be used in place of a physician's clinical assessment."

In other words, gynecologic oncologists will have little use for a test like OVA1 since they're performing surgery to remove the cancerous mass anyway. That leaves Vermillion and Quest marketing OVA1 to obstetricians-gynecologists, but these doctors already have good tools to help detect and diagnose pelvic masses and ovarian cancer and remove them surgically. It's true that ob-gyns might want to use OVA1 to rule out ovarian cancer in women diagnosed with pelvic masses, but the patient is still going to have surgery and ob-gyns, by using OVA1, could lose their patient to referral.

It's easy to hype OVA1 before it launches, but the test will hit the market this month, at which point Quest and Vermillion will need to start putting up sales numbers to prove their bullish projections. With Vermillion's stock reaching new highs every day, the risk-reward is lousy.

On a related note, positive clinical data for a urine-based prostate cancer diagnostic test from Gen-Probe ( GPRO) has been singled out for special notice by the American Society of Clinical Oncology at its Genitourinary Cancer Symposium. Conspicuously absent from the medical meeting is Health Discovery ( HDVY.OB) and its "confidential" urine-based prostate cancer screen.

Jack S. brings up a strange case of non-disclosure at GTx ( GTXI) concerning the company's experimental hormone drug Ostarine, which is (was?) partnered with Merck ( MRK)." Merck terminated the development of Ostarine, as reported in its 10-K. My calls to GTx have not been returned. This would seem to be a huge blow to GTx and I'm shocked they haven't made a press release on this as of yet."

On page 128 of its annual report filed March 1 with the SEC, Merck (newly merged with the old Schering-Plough) says this about Ostarine, referred to here as MK-2866:

"Also in 2007, Old Merck and GTx, Inc. entered into an agreement providing for a research and development and global strategic collaboration for selective androgen receptor modulators ("SARMs"), a new class of drugs with the potential to treat age-related muscle loss (sarcopenia) as well as other musculoskeletal conditions. Merck has discontinued internal development of MK-2866 (which is a SARM) under this agreement, and is currently discussing next steps with GTx."

In response, GTx spokesman McDavid Stillwell told me, "We have no comment yet, but we will have one. I'm not sure when, but fairly soon."

Ostarine (MK-2866) is a very important drug in GTx's pipeline and the collaboration with Merck helped validate the drug and added to GTX's market valuation. GTx's stock price has taken a hit this week as word of Merck's exit leaked out.

GTx announces fourth-quarter financial results on March 15, so perhaps the company will say something then about the fate of Ostarine.

-- Reported by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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